2017 (2) TMI 998 - AT - Income Tax

Tribunal rules in favor of taxpayer on capital gains computation for tenancy rights surrender.

The ACIT-11 (3), Mumbai Versus Modern Hospital for Women

The ACIT-11 (3), Mumbai Versus Modern Hospital for Women - TMI Issues:1. Correct computation of capital gains on surrender of tenancy rights.2. Whether the assessee is entitled to deduct index cost of acquisition of tenancy rights.3. Interpretation of provisions of section 55(2)(a)(i) and section 55(2)(a)(ii) of the Income Tax Act, 1961.Issue 1: Correct computation of capital gains on surrender of tenancy rightsThe appeal was filed by the revenue against the order passed by the CIT(Appeals)-2, Mumbai, for the assessment year 1996-97. The appellant firm, engaged in running a nursing home, had declared total income of Rs. 2,23,012. The Assessing Officer (AO) determined the total income at Rs. 74,07,590, including long-term capital gain on the transfer of tenancy rights. The CIT(A) confirmed the assessment order, leading the assessee to file a second appeal before the ITAT. The ITAT remitted the issue of the cost of acquisition of tenancy rights and indexation benefit back to the AO. The AO rejected the claim for considering Rs. 3,80,000 as the cost of acquisition. The CIT(A) upheld the assessment order, prompting the assessee to file a rectification application. The CIT(A) advised the assessee to file a rectification application before the AO. The AO passed a rectification order without changing the income determined under section 143(3) of the Act. The Ld. CIT(A) allowed the appeal of the assessee, holding that the assessee is entitled to deduct the index cost of acquisition of tenancy rights.Issue 2: Entitlement to deduct index cost of acquisition of tenancy rightsThe department appealed before the Tribunal, challenging the Ld. CIT(A)'s order on the grounds that the AO should not have considered the acquisition right as NIL and should not have been directed to work out capital gain on the surrender of tenancy rights after considering the cost of acquisition. The Ld. DR argued that the Ld. CIT(A) erred in his decision. However, the Ld. Counsel for the assessee contended that the Ld. CIT(A)'s order was in accordance with the ITAT Mumbai's direction in a previous case. The Tribunal examined the facts, noting that the AO had not correctly applied the order of the ITAT. The Tribunal agreed with the Ld. CIT(A) that the AO had made a legal mistake by treating the cost of acquisition of tenancy as NIL. The Tribunal found that the assessee had provided sufficient evidence to demonstrate the cost of acquisition of tenancy rights, and the AO should have given a proper deduction from the capital gain.Issue 3: Interpretation of provisions of section 55(2)(a)(i) and section 55(2)(a)(ii)The Tribunal referred to a similar case where the issue was whether indexation on the cost of acquisition of tenancy rights should be allowed. The Tribunal considered the submissions and relevant case law, ultimately dismissing the revenue's appeal and confirming the order of the Ld. CIT(A). The Tribunal upheld the Ld. CIT(A)'s direction to work out capital gain on the surrender of tenancy rights after considering the cost of acquisition and allowing the benefit of indexation. The Tribunal found no legal or factual infirmity in the Ld. CIT(A)'s order and dismissed the appeal filed by the revenue for the assessment year 1996-97.In conclusion, the Tribunal upheld the findings of the Ld. CIT(A) and dismissed the revenue's appeal, emphasizing the correct computation of capital gains on the surrender of tenancy rights and the entitlement of the assessee to deduct the index cost of acquisition of tenancy rights.